Amerisur’s CFO Harrison on the real impact of today’s drilling disappointment as major programme continues (AMER)

25 Sep 2018

Amerisur Resources (LSE:AMER) was down 16.2pc to 12.7p in midday trading today after announcing that its Platanillo-1 well had failed to find any hydrocarbons in the N sands at its Platanillo block in Colombia. With the N sands making up less than 10pc of the total resources targeted in Amerisur’s current work programme, CFO Nick Harrison talks explains the real impact today’s news is likely to have on the firm.

Ongoing programme

In today’s update, Amerisur said that, after drilling to a total depth of 8,465ft, Platanillo-1 has not, as yet, recovered hydrocarbons. The N sand, which was the primary target of the well, was found to have a strong development of limestone and calcareous sandstone at 63 feet total thickness, with logs indicating no hydrocarbon production potential.

Amerisur, which described the results as ‘unexpected’ said it is now analysing the logs and samples obtained before making any further drilling decisions on the other two wells it had planned at the N sands.

Speaking to ValueTheMarkets, Harrison said that while the results are no doubt ‘disappointing’, the N sands only made up a small part of the resources it is targeting in Colombia over the next year. Indeed, the business is currently at the beginning of a fully funded work programme targeting total resources of 131.53MMbo, as can be seen below. Of this figure, it was targeting just 11.44MMbo at the N sands. As he put it to us:

‘The reality is that exploration does come with risks. Yes, it is disappointing, and we were anticipating a better result, but it is just a case of moving on with drilling across our leases. If we look at what we are targeting over the next 12 months, the N sands form less than 10pc of what could be on offer. We have these other blocks that we are going to be drilling over the next 12 months, and those are all exciting prospects that open up exciting horizons for us.’

He added that the business should be able to move on swiftly from today’s news, with up to five wells planned before the end of 2018. The first of these, Indico-1, is due to be spudded in the latter half of October at the firm’s 30pc-owned CPO-5 leases, where it is targeting a net resource of 5.1MMbo. In today’s update, the firm said a rig mobilisation to the Indico-1 drill site is going to plan.

Alongside its partner, the firm also plans to drill a further two exploration wells targeting separate structures at CPO-5 before the end of the year. These will be called Aguila-1 and Sol-1. Meanwhile, two wells are also planned at Amerisur’s 100pc-owned Putumayo 8 site, where it is targeting 5.63MMbo.

Every cloud

Although it failed to identify hydrocarbons at the N sands, today did see Amerisur announce that Pintadillo-1 had confirmed a potentially commercial hydrocarbon-bearing reservoir in the Platanillo block’s T and U sands.

The company said the sands were both found to be well developed with more than 10ft of net pay and offer reserves upside and potential bolt-on production volumes for the Platanillo block. To date, the business has already successfully produced c.300,000bbls/oil from the T sand at its Platanillo-8 and Platanillo-20 fields.

The well has now been cased and cemented, and the company intends to initially perform flow testing of the T sand. If testing is successful, then the crude produced from the T sand will be evacuated through the company’s OBA pipeline in the initial examination, long-term testing, and commercial production phases.

Harrison tells us that although the firm currently has no idea at what level it will go on production at from the T sands, any production will mitigate the disappointment in the N sands and contribute to Amerisur financially:

‘Although we didn’t find anything at the N sands, we did find something at the T and U sands, and it looks like it is a new structure. Obviously, we do not have any idea what this well will go on production at this early stage. But if it is successful then it will contribute something to production and contribute financially to the drilling costs- It is not like the money spent on drilling has yielded no results at all.”

Big picture

As mentioned, despite the N sands making up a small portion of Amerisur’s planned upside and an additional discovery offering some production potential, Amerisur’s shares were down heavily today as at writing. With analysts suggesting that Amerisur was trading at its core NAV at around 15p per share, Harrison said he finds the movement downwards on the back of today’s announcement surprising:

‘At 15p, the share price had nothing in it for the N sands. So, while we would have expected shares to go up if there was a discovery, it does not seem to follow that it would go down when there was no discovery made, as nothing has been lost in that sense. That being said, movements like this are all part of our longer-term journey, and we will have the wells at CPO-5 and Putumayo-8 spudding shortly. Then, next year, we will move on to Putumayo-9 and Putumayo-12, where we are targeting a huge amount of upside. We have plenty of cash and opportunity left to run at.’

Author: Daniel Flynn

Disclosure: The author does not own shares in the company mentioned in this article

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